third quarter 2014 resultsirpages2.eqs.com/download/companies/koninkpnnv/quarterly report… ·...

Third Quarter 2014 results

28 October 2014

Non-GAAP measures and management estimatesThis financial report contains a number of non-GAAP figures, such as EBITDA and Free Cash Flow (‘FCF’). These non-GAAP figures should not be viewed as a substitute for KPN’s GAAP figures. KPN defines EBITDA as operating result before depreciation and impairments of PP&E and amortization and impairments of intangible assets. Note that KPN’s definition of EBITDA deviates from the literal definition of earnings before interest, taxes,depreciation and amortization and should not be considered in isolation or as a substitute for analyses of the results as reported under IFRS as adopted by the European Union. In the Net Debt / EBITDA ratio, KPN defines Net Debt as the nominal value of interest bearing financial liabilities excluding derivatives and related collateral, representing the net repayment obligations in Euro, taking into account 50% of the nominal value of the hybrid capital instruments, less net cash and short-term investments, and defines EBITDA as a 12 month rolling total excluding restructuring costs, incidentals and major changes in the composition of the Group (acquisitions and disposals). Free Cash Flow is defined as cash flow from operating activities plus proceeds from real estate, minus capital expenditures (Capex), being expenditures on PP&E and software and excluding tax recapture regarding E-Plus. Revenues are defined as the total of revenues and other income unless indicated otherwise. Adjusted revenues and adjusted EBITDA are derived from revenues (including other income) and EBITDA, respectively, and are adjusted for the impact of restructuring costs and incidentals.The term service revenues refers to wireless service revenues. Underlying service revenues are derived from service revenues adjusted for the impact of MTA and roaming (regulation) and incidentals. All market share information in this financial report is based on management estimates based on externally available information, unless indicated otherwise. For a full overview on KPN’s non-financial information, reference is made to KPN’s quarterly factsheets available on www.kpn.com/ir

Forward-looking statementsCertain statements contained in this financial report constitute forward-looking statements. These statements may include, without limitation, statements concerning future results of operations, the impact of regulatory initiatives on KPN’s operations, KPN’s and its joint ventures' share of new and existing markets, general industry and macro-economic trends and KPN’s performance relative thereto and statements preceded by, followed by or including the words “believes”, “expects”, “anticipates”, “will”, “may”, “could”, “should”, “intends”, “estimate”, “plan”, “goal”, “target”, “aim” or similar expressions.These forward-looking statements rely on a number of assumptions concerning future events and are subject to uncertainties and other factors, many of which are outside KPN’s control that could cause actual results to differ materially from such statements and speak only as of the date they are made. A number of these factors are described (not exhaustively) in the Integrated Annual Report 2013.

Safe harbor

2

Contents

1 Chairman’s review Eelco Blok

2 Group financial review Steven van Schilfgaarde

3 Group operating review Eelco Blok

4 Concluding remarks Eelco Blok

3

Executive summaryGood strategic progress

Continued customer base growth 4G, IPTV and multi play in The Netherlands

Strong growth Consumer fixed-mobile bundles (+84k) and Business multi play seats (+37k)

Return to growth in broadband (+6k), good IPTV net adds (+49k) High postpaid net adds in Consumer Mobile (+84k) >1.7m 4G customers in The Netherlands Strong improvement customer satisfaction The Netherlands,

NPS well above market averages BASE Company showed good postpaid net adds (+18k)

Good strategic progress

Simplification program well on tracko YTD ’14 Capex and opex savings ~€ 100m y-on-yo ~475 FTE reductions YTD ’14

Simplification

4

Executive summary

Adjusted revenues -4.9% y-on-y in Q3 ’14 versus -7.0% in Q2 ’14o Positive impact customer base growth, but still lower mobile price

levels y-on-y and ongoing decline of business market size Adjusted EBITDA (excl. phasing out handset lease) -12% y-on-y in Q3 ’14

versus -13% in Q2 ’14o Lower revenues, partly offset by positive impact Simplification

Capex YTD ’14 23% lower y-on-y driven by lower customer driven investments, lower network investments and Simplification

Free cash flow YTD ’14 reflects phasing

Financial results

€ 5bn cash and attractive 20.5% stake in Telefónica Deutschland DTA of € 1.2bn, limited tax cash out in The Netherlands in coming years Dividend payments recommenced

Sale of E-Plus completed

5

Cash proceeds increasing financial flexibility, up to € 2.0bn allocated for bond tender to reduce gross debtUse of proceeds

Sale of E-Plus successfully completedCash proceeds increasing financial flexibility

6

Use of cash proceeds

• Majority of cash proceeds to increase financial flexibility − Bond tender− Regular bond redemptions− Intended Reggefiber consolidation− Pension fund agreement

• Strengthened financial position provides solid platform to execute strategy

• Dividend payments recommenced

Bond tender

• Up to € 2.0bn allocated for bond tender− Tender period 28 October - 4 November 2014

• Tender EUR and GBP senior unsecured bonds with remaining maturities <10 years

• Realigning financial profile with new company profile

Shareholder remuneration

7

Dividend payments recommenced

• Intended DPS of € 0.07 in respect of 2014

• € 0.02 interim dividend paid in October 2014 following closing E-Plus sale

• € 0.05 final dividend expected in April 2015

• Growing DPS expected in respect of 2015

Additional excess cash

• 20.5% stake Telefónica Deutschland treated as financial investment− Cash upside via dividend payments− Exposure to >€ 5bn synergy potential

• Excess cash could be utilized for − Operational / financial flexibility− (Small) in-country M&A− Shareholder remuneration

Outlook (continuing operations)1

On track to reach outlook

8

1 The release of the pension provision and related one-off lump-sum payment are seen as incidentals and therefore excluded from the outlook2 Assuming Reggefiber consolidation per 31 December 20143 Free cash flow outlook defined as cash flow from operating activities, plus proceeds from real estate, minus Capex and excluding potential Telefónica

Deutschland dividend

2014• Financial performance stabilizing towards the end of 2014• Capex < € 1.4bn2

2015

• Capex < € 1.5bn, including Reggefiber2

• Free cash flow (excl. TEFD dividend)3 growth expected in 2015 Limited tax cash out in The Netherlands in coming years due to tax loss on sale

of E-Plus Interest payments trending down due to reduction of gross debt in coming years

• Additional excess cash via potential dividend from 20.5% stake Telefónica Deutschland

Contents





9

10

Group financial profile

1 Net repayment obligations in Euro, taking into account 50% of the nominal value of the hybrid capital instruments, less net cash and short-term investments

2 Pro forma adjustment, including net cash proceeds E-Plus sale and Reggefiber consolidation impact3 Based on 12 months rolling total excluding restructuring costs, incidentals and major changes in the composition of the Group (acquisitions and disposals)4 Pro forma adjustment: i) excluding last 12 months E-Plus EBITDA; ii) including Reggefiber consolidation impact

• Pro forma net debt of € 6.1bn

• Average coupon senior bonds 4.9%, average maturity senior bonds 6.8 years

• Net debt / EBITDA at ~2.3x, pro forma E-Plus sale and Reggefiber consolidation− Lower 12 months rolling EBITDA − Partly offset by lower net debt

• Pension fund agreement announced in Q2 ’14 improving KPN’s financial risk profile

€ bn Net debt

10

Net debt / EBITDA

~2.2x

Q3 ’14

~2.3x

2.9x

Q2 ’14

2.8x

Q3 ’13

2.4x

Pro forma net debt2 / EBITDA4Net debt1 / EBITDA3

10.310.5

6.16.3

9.6

Q3 ’14Q2 ’14Q3 ’13

Pro forma net debt2Net debt1

Group results Q3 ’14 (continuing operations)

• Adjusted revenues down 4.9% y-on-y (Q2 ’14: -7.0%)− Lower mobile price levels y-on-y and

ongoing decline business market size− Partly offset by positive impact customer

base growth

• Opex (excl. D&A and impact phasing out handset lease) decreased 1.2% y-on-y

• Adjusted EBITDA (excl. impact phasing out handset lease of ~€ 21m) down 12% y-on-y (Q2 ’14: -13%)− Declining revenues partly offset by positive

impact Simplification

• Net profit of € 38m excluding impact revaluation Reggefiber option (€ -114m)

€ m (continuing operations) Q3 ’14 Q2 ’14 Q3 ’13 y-on-y %

RevenuesAdjusted revenues1

1,9781,978

2,0041,989

2,0802,080

-4.9%-4.9%

Opex (excl. D&A) 1,345 937 1,337 0.6%

EBITDA2

Adjusted EBITDA3

633650

1,067633

743762

-15%-15%

– Depreciation4

– Amortization4

Operating expenses

294146

1,785

319143

1,399

319143

1,799

-7.8%2.1%

-0.8%

Operating profit 193 605 281 -31%

Financial income/expenseShare of profit of associates

-255-3

-161-

-176-3

45%flat

Profit before taxes -65 444 102 n.m.

Taxes -11 -95 -15 -27%

Profit after taxes -76 349 87 n.m.

1 Adjusted revenues are derived from revenues and other income and are adjusted for the impact of incidentals2 Defined as operating profit plus depreciation, amortization & impairments3 Adjusted EBITDA is derived from EBITDA and is adjusted for the impact of restructuring costs and incidentals4 Including impairments, if any

11

Group results YTD ’14 (continuing operations)

• Adjusted revenues down 6.6% y-on-y

• Opex (excl. D&A, pension release and impact phasing out handset lease) decreased 3.2% y-on-y− Lower personnel costs in The Netherlands

• Adjusted EBITDA (excl. impact phasing out handset lease of ~€ 112m) down 14% y-on-y

• Reported EBITDA supported by € 451m release of pension provision (€ 361m net of tax) in Q2 ’14

€ m (continuing operations) YTD ’14 YTD ’13 %

RevenuesAdjusted revenues1

5,9785,956

6,4116,374

-6.8%-6.6%

Operating expenses (excl. D&A) 3,654 4,109 -11%

EBITDA2

Adjusted EBITDA3

2,3241,904

2,3022,332

1.0%-18%

– Depreciation4

– Amortization4

Operating expenses

919428

5,001

930444

5,483

-1.2%-3.6%-8.8%

Operating profit 977 928 5.3%

Financial income/expenseShare of profit of associates

-575-4

-514-7

12%-43%

Profit before taxes 398 407 -2.2%

Taxes -122 -6 >100%

Profit after taxes 276 401 -31%

1 Adjusted revenues are derived from revenues and other income and are adjusted for the impact of incidentals2 Defined as operating profit plus depreciation, amortization & impairments3 Adjusted EBITDA is derived from EBITDA and is adjusted for the impact of restructuring costs and incidentals4 Including impairments, if any

12

Group cash flow Q3 ’14 (continuing operations)

• Free cash flow higher y-on-y at € 250m mainly due to− € 126m more cash from change in working

capital− € 74m lower Capex− € 47m more cash from change in

provisions− € 38m lower interest paidPartly offset by− € 110m lower EBITDA

• Capex 21% lower y-on-y− Lower customer driven investments, incl.

phasing out of handset lease − Lower mobile network investments− Simplification

€ m (continuing operations) Q3 ’14 Q3 ’13 %EBITDAInterest paid/receivedTax paid/receivedChange in provisions1

Change in working capital1Other movements

633-130-14-8483

743-168-82-55-78

2

-15%-23%-83%-85%n.m.50%

Net cash flow from operating activities

532 362 47%

Capex2 283 357 -21%Proceeds from real estate 1 - n.m.

Tax recapture E-Plus - 58 -100%

Free cash flow3 250 63 >100%

Coupon on perpetual hybrid -67 -34 97%

1 Excluding changes in deferred taxes2 Including property, plant & equipment and software 3 Defined as cash flow from operating activities, plus proceeds from real estate, minus Capex and excluding tax recapture E-Plus

13

Group cash flow YTD ’14 (continuing operations)

• Free cash flow € 195m lower y-on-y mainly due to− € 429m lower EBITDA, excluding € 451m

pension provision release in Q2 ’14− € 94m less cash from change in working

capital, YTD ’13 supported by € 167m prepayments made in Q4 ’12

Partly offset by− € 275m lower Capex − € 40m lower tax paid

• Capex 23% lower y-on-y− Lower customer driven investments, incl.

phasing out of handset lease − Lower mobile and fixed network

investments− Simplification

€ m (continuing operations) YTD ’14 YTD ’13 %EBITDAInterest paid/receivedTax paid/receivedChange in provisions1

Change in working capital1Other movements

2,324-585-27

-612-140

-1

2,302-584-218-156-46-21

1.0%0.2%-88%

>100%>100%

-95%

Net cash flow from operating activities

959 1,277 -25%

Capex2 930 1,205 -23%Proceeds from real estate 1 2 -50%

Tax recapture E-Plus - 151 -100%

Free cash flow3 30 225 -87%

Coupon on perpetual hybrid -67 -34 97%

1 Excluding changes in deferred taxes2 Including property, plant & equipment and software 3 Defined as cash flow from operating activities, plus proceeds from real estate, minus Capex and excluding tax recapture E-Plus

14

Contents





15

Financial review

Operating review The Netherlands

16

1,5651,5881,661

614600713

-5.8%

Q3 ’14

39.2%

Q2 ’14

37.8%

Q3 ’13

42.9%

Adjusted EBITDA

Adjusted revenues

Adjusted EBITDA margin

€ m

• Adjusted revenues 5.8% lower y-on-y (Q2 ’14: -7.6%)

• Adjusted EBITDA 11% lower y-on-y (excl. impact phasing out handset lease) (Q2 ’14: -13%)

Good strategic progress

• Simplification resulting in YTD ’14 Capex and opex savings ~€ 100m y-on-y

• Continued improvement customer satisfaction

0

+15+22

Competitor 2Competitor 1KPN

NPS difference vs. main competitors1

0

Competitor 3Competitor 2

+5

Competitor 1

+11

KPN

+15

0

Competitor 3Competitor 2

+9

Competitor 1

+13

KPN

+20

Interactive TV

Consumer Mobile2

1 Research TNS, rebased to the lowest score2 KPN score is weighted average over all brands

Business

17

Continued growth triple play

k

1,3161,2861,169

+5%-points

Q3 ’14

48%

Q2 ’14

47%

Q3 ’13

43%

Triple play customersTriple play as % of broadband customers

• Continued growth triple play customer base, penetration up 5%-points y-on-y

Strong growth fixed-mobile bundles

k

Q3 ’14

16%

Q2 ’14

13%

Q3 ’13

4%

% of retail postpaid customer base in fixed-mobile bundles

10%14%

3%

Q3 ’13

27386

Q3 ’14

369

86

285

315

Q2 ’14 Fixed-mobile bundles

Fixed-mobile bundles as % of broadband customers

Of which quad play

Consumer - multi play Fixed-mobile bundles successful

Consumer Residential

18

477476489

109106107

-2.5%

Q3 ’14

22.9%

Q2 ’14

22.3%

Q3 ’13

21.9%

Adjusted EBITDA

Adjusted revenues


Fina

ncia

l rev

iew

€ m

RG

Us

& A

RPU

per

cu

stom

er

Blended ARPU (€)RGUs (#)

444443

2.242.232.16

Q3 ’14Q2 ’14Q3 ’13

• Adjusted revenues 2.5% lower y-on-y− Ongoing decline traditional voice services− Increased commercial activities to counter

continued promotional activities by competition

• Adjusted EBITDA margin of 22.9% supported by lower personnel costs

• Increasing RGUs per customer driven by strong take-up triple play

• Continued increase ARPU per customer

Consumer Residential (cont’d)Commercial initiatives successfully supporting RGU trends

19

IPTV

net

add

s &

TV

mar

ket s

hare

Bro

adba

nd n

et a

dds

& m

arke

t sha

re

6

-7

4

Q3 ’14

40%

Q2 ’14

40%

Q3 ’13

41%

4943

72

25%

Q3 ’14

26%

Q2 ’14

26%

Q3 ’13

• Commercial initiatives and copper upgrades successfully supporting RGU trends− Integrated FttH / copper proposition− New KPN and Telfort fixed-mobile bundles − Increased promotional activities− On track for ~50% coverage of households with

100Mbps end-2014

• Return to growth in broadband, good IPTV net adds

• >1.5 million IPTV customers

1 Source: Telecompaper, management estimates for Q3 ’14

Net adds (k)Broadband market share1

Net adds (k)TV market share1

Consumer Mobile

20

€ m

354354375

4751101

-5.6%

Q3 ’14

13.3%

Q2 ’14

14.4%

Q3 ’13

26.9%

Adjusted EBITDA

Adjusted revenues


Fina

ncia

l rev

iew

Serv

ice

reve

nues

&

mar

ket s

hare

-8.2%

Q3 ’14

323

288

42%

Q2 ’14

323

283

43%

Q3 ’13

352

44%

312

RetailWholesaleTotal market share NL1

• Underlying service revenue decline of 6.9% y-on-y (Q2 ’14: -9.3%)− Mainly driven by lower above bundle usage and

lower price levels y-on-y− Improving trend due to high postpaid net adds

supported by lower churn

• Adjusted EBITDA margin lower y-on-y− Phasing out handset lease (~€ 21m)− Lower service revenues− Higher SAC/SRC driven by higher number of new

handset subscriptions

• Total Dutch mobile market share somewhat lower at 42%

€ m

1 Total Dutch (Consumer and Business) mobile service revenue market share

Consumer Mobile (cont’d)Continued high retail postpaid net adds

21

Post

paid

net

add

s

• High retail postpaid net adds of 84k− Driven by good performance of KPN brand and

no frills brands

• Lower churn across all brands supported by− Increased uptake fixed-mobile bundles− Nationwide 4G coverage

• 4G uptake continuing, now 1.1m subscribers in Consumer Mobile (Q2 ’14: 845k)

• Retail postpaid ARPU stable compared to Q2 ’14

• Committed ARPU up 5%-points y-on-y

84

53

-13 -19-12

5

Q3 ’13 Q3 ’14Q2 ’14

WholesaleRetail

% committed retail postpaid ARPU

282831

Q3 ’14Q2 ’14Q3 ’13

Retail ARPU (€)

Post

paid

AR

PU

~70% ~76% ~75%

k

Business Challenging market environment impacting financial performance

22

• Adjusted revenues declined 7.0% y-on-y− Continued decline of market size driven by

customer rationalization and optimization

• Adjusted EBITDA margin at 22.4%− Continued decline traditional voice services− Higher SAC/revenues to maintain market positions− Partly offset by lower personnel expenses and

several small positive one-offs

• Decline in access lines driven by continued rationalization and migration towards VoIP

• Stable wireless customer base, ARPU lower

• Committed ARPU increased 8%-points y-on-y

706727759

158153188

-7.0%

Q3 ’14

22.4%

Q2 ’14

21.0%

Q3 ’13

24.8%

Adjusted EBITDA

Adjusted revenues


€ m

Fina

ncia

l rev

iew

1 Excluding M2M and multi play customers2 Excluding M2M

AR

PU, c

usto

mer

s &

ac

cess

line

s

424345515152

1,7091,710

897928

1,652

1,027

Q3 ’14Q2 ’14Q3 ’13Wireless customers (k)2

Access lines (k)Traditional voice ARPU (€)

Wireless single play ARPU (€)1

~53% ~61% ~61%

% committed wireless ARPU1

Business (cont’d)Accelerating cost reduction programs to offset revenue pressure

23

• Further steps to simplify product portfolio, client processes and IT− ~€ 10m y-on-y reduction external personnel

spend− Reduction inbound calls

• ~350 FTE reductions YTD ’14− 400-500 FTE reductions expected FY ’14

Additional cost measures to be implemented to offset continued revenue pressure

Initial Simplification benefits

~20%

Q3 ’14Q3 ’13

Inbound calls (#)

• Growing 4G customer base, now 612k subscribers (Q2 ’14: 525k)

• Growing number of multi play seats

Good progress 4G & multi play

257220

47

12%10%

1%

Q2 ’14Q3 ’13 Q3 ’14

Multi play seats (k)

Mobile customers in multi play as % of mobile customer base

Q3 ’14

36%

Q2 ’14

31%

Q3 ’13

6%

4G customers as % of mobile customer base

NetCo

€ m

24

• Adjusted revenues down 4.5% y-on-y− Decline traditional services and lower traffic across

segments− Lower wholesale traffic revenues

• Adjusted EBITDA margin relatively stable at 54.6%− Decline of high margin traditional services− Partly offset by savings from Simplification

• Good progress to reduce complexity− Mobile IP backbone networks phased out,

migrated to fixed-mobile converged network− Obsolete DSLAMs & Ethernet network phased out

557560583

304305319

-4.5%

Q3 ’14

54.5%

Q3 ’13

54.6%

Q2 ’14

54.7%

Adjusted EBITDA

Adjusted revenues


Fina

ncia

l rev

iew

€ m

Sim

plifi

catio

n

iBasis

25

243231248

759

-2.0%

Q3 ’14

2.9%

Q2 ’14

2.2%

Q3 ’13

3.6%

Fina

ncia

l rev

iew

€ m

Adjusted EBITDA

Adjusted revenues


• Adjusted revenues down 2.0% y-on-y− Competitive international wholesale traffic market

• Adjusted EBITDA margin at 2.9%− Decline of high margin revenues, partly offset by

continued cost focus

• Successfully completed first international VoLTE roaming calls together with China Mobile

26

Price leadership1

Service leadership2

NPS scores

-10-14

-5

+2

1 Company research2 Company research June 2014

% of users recognizing price difference, consider operator the cheapest

BelgiumPrice, service and network quality leadership

Price leadership

Service leadership

Leading network quality

Customer

5049555956

5150

1513141819 2020272726

3032

1514

20092008 H1 20142013

18

2012

6

20112010

18

Proximus Mobistar TelenetBASE

High network quality

• Ongoing network investments, 4G coverage ~63% end Q3 ’14

Belgium (cont’d)

27

• Underlying service revenue decline 1.3% y-on-y (Q2 ’14: -1.9%) in stabilizing market− Postpaid service revenue growth, prepaid remains

under pressure− Continued tariff optimization by customers

• Adjusted EBITDA margin at 21.6%− Higher traffic costs driven by flat fee propositions− Provision for Walloon region site taxes (€ 2m)

• Streamlining distribution model, 27 shops closed in September 2014

• Continued strong data revenue growth of >60% y-on-y

€ m

Fina

ncia

l rev

iew

Serv

ice

reve

nues

& m

arke

t sha

re

Service revenuesService revenue market share

158

Q3 ’14

151

~21%

Q2 ’14

155

~21%

Q3 ’13

~21%€ m

176178181

383947

-2.8%

Q3 ’14

21.6%

Q2 ’14

21.9%

Q3 ’13

26.0%

Adjusted EBITDA

Adjusted revenues


Belgium (cont’d)Continued good postpaid net adds

28

Postpaid net addsPrepaid net addsCustomers (m)

€

3.33.23.3

Q3 ’14Q2 ’14

16 18

-195

Q3 ’13

75

-61

46

313134

899

Q3 ’14Q2 ’14Q3 ’13

PrepaidPostpaid

• Continued good postpaid net adds

• Prepaid net adds of +75k driven by strong performance wholesale partners

• Postpaid ARPU stabilizing

Net

add

s &

cu

stom

er b

ase

AR

PU

k

Contents





29

Concluding remarks

30

Continued customer base growth 4G, IPTV and multi play in The Netherlands

Price, service and network quality leadership in Belgium

Simplification program well on track

Financial performance gradually improving

E-Plus sale leads to solid financial profile, dividend payments recommenced

Cash proceeds increasing financial flexibility, bond tender to reduce gross debt

Annex

For further information please contact

KPN Investor Relations+31 70 44 [email protected]/ir

Q3 2014 - Information Pack

Contents

1 KPN ADR program

2 Group results analysis

3 Debt overview

4 Regulation & Spectrum

5 Fixed infrastructure & Reggefiber

6 Telefónica Deutschland stake

32

33

ADR programBloomberg ticker KKPNYTrading platform Over-the-counter (OTC)CUSIP 780641205Ratio 1 ADR : 1 Ordinary ShareDepositary bank Deutsche Bank Trust Company AmericasDepositary bank contact Begonia Roberts

ADR broker helpline+1 212 250 9100 (New York) +44 207 547 6500 (London)

E-mail [email protected] website www.adr.db.comDepositary bank’s local custodian Deutsche Bank, Amsterdam

KPN ADR programKPN has a sponsored Level 1 ADR program

Contents

1 KPN ADR program


3 Debt overview




34

35

Analysis of adjusted results YTD ’14 Impact incidentals (no incidentals in Q3 ’14 and Q3 ’13)

Revenues (€ m) YTD ’14 YTD ’13Sale of fixed assets (hardware) Business 5 -Change in provision NetCo 17 -6Book gain sale IS&P Business - 23

Adjustment deferred revenues Germany, Consumer Residential, Consumer Mobile - 49

KPN Group 22 66

Of which discontinued operations - 29

KPN Group continuing operations 22 37

EBITDA (€ m) YTD ’14 YTD ’13 Volume discount hardware Germany 8 -Change in provision NetCo 17 4Sale of fixed assets (hardware) Business 5 -Release of pension provision Other 451 -

Adjustment deferred revenues Germany, Consumer Residential, Consumer Mobile - 49

Book gain sale IS&P Business - 23Release of asset retirement obligation NetCo, Germany - 42Release accruals NetCo - 7KPN Group 481 125

Of which discontinued operations 8 66

KPN Group continuing operations 473 59

36

Restructuring costs

€ m Q3 ’14 Q3 ’13 YTD ’14 YTD ’13Germany (incl. discontinued operations)Belgium

-6-

1-

-12-3

6-

Mobile International (incl. discontinued operations) -6 1 -15 6

Consumer MobileConsumer ResidentialBusinessNetCoOther

--1-5-21

--4-5-2-7

-1-7

-18-3-2

-5-16-24-7

-32The Netherlands -7 -18 -31 -84

Other -10 -1 -19 -5

KPN Group -23 -18 -65 -83

Of which discontinued operations -6 1 -12 6

KPN Group continuing operations -17 -19 -53 -89

Impact regulation

€ m Q3 ’14 Q3 ’13Revenues EBITDA Revenues EBITDA

Germany (incl. discontinued operations)Belgium

-20-5

-17-4

-42-11

-22-7

Mobile International (incl. discontinued operations) -25 -21 -53 -29

Consumer MobileOf which: Mobile WholesaleBusinessNetCo

-5-

-6-1

--

-4-

-7-

-10-2

-3-

-7-

The Netherlands -12 -4 -19 -10

KPN Group -37 -25 -72 -39

Of which discontinued operations -20 -16 -42 -22

KPN Group continuing operations -17 -9 -30 -17

37

Operating expenses

€ m Q3 ’14 Q3 ’13 %Employee benefits 309 307 0.7%Cost of materials 171 146 17%Work contracted out and other expenses 793 782 1.4%Own work capitalized -17 -17 flatOther operating expenses1 89 119 -25%Depreciation2 294 319 -7.8%Amortization2 146 143 2.1%Total operating expenses from continuing operations 1,785 1,799 -0.8%

€ m

1 Including restructuring costs2 Including impairments (if any)3 As % of revenue excluding other income4 Excluding release of pension provision in Q2 2014

-451

Q3 ’14

1,785

440

1,345

90.3%

Q2 ’14

1,399

462

1,3884

92.6%

70.0%

Q1 ’14

1,817

445

1,372

91.0%

Q4 ’13

1,963

483

1,480

95.3%

Q3 ’13

1,799

462

1,337

86.4%

Q2 ’13

1,864

467

1,397

87.3%

Q1 ’13

1,820

445

1,375

83.9%

38

Depreciation & AmortizationRelease of pension provisionOperating expenses (excl. D&A)Operating expenses as % of revenues (norm.)3,4

Operating expenses as % of revenues3

Y-on-Y increase• Release of provisions for several incentive

schemes in Q3 ’13

Q-on-Q decrease• Lower cost as a result of FTE reduction program• Release of provision for holiday allowance

Operating expenses - analysis Employee benefits & Cost of materials

Cost of materials(Continuing operations)

Employee benefits(Continuing operations)

€ m

€ m Y-on-Y increase• Higher costs due to phasing out of handset lease at

all brands at Consumer Mobile• High SAC/SRC at Consumer Mobile due to higher

number of new handset subscriptions

Q-on-Q decrease• Lower hardware costs at Business

-451

Q3 ’14

309

15.6%

Q2 ’14

3181

15.9%1

Q1 ’14

322

16.1%

Q4 ’13

301

14.6%

Q3 ’13

307

14.8%

Q2 ’13

324

15.2%

Q1 ’13

365

16.8%

Q3 ’14

171

8.6%

Q2 ’14

1743

8.7%

Q1 ’14

175

8.8%

Q4 ’13

186

9.0%

Q3 ’13

146

7.0%

Q2 ’13

130

6.1%

Q1 ’13

112

5.2%

Release pension provisionEmployee benefits% of Revenues2

Cost of materials% of Revenues2

39

1 Excluding release of pension provision in Q2 20142 As % of revenue excluding other income3 Restated due to better insights

Operating expenses - analysis Work contracted out & Other

Other(Continuing operations)

Work contracted out (Continuing operations)

€ m

€ m

Y-on-Y increase• Higher content costs at Consumer Residential• Higher FttH activation costs at NetCoPartly offset by• Lower IT costs due to Simplification program at

NetCo• Less external personnel

Q-on-Q increase• Higher traffic costs at iBasis related to higher

external revenues

Y-on-Y and Q-on-Q decrease• Lower costs due to Simplification• Lower marketing spend• Lower restructuring costs

Q3 ’14

89

4.5%

Q2 ’14

131

6.6%

Q1 ’14

84

4.2%

Q4 ’13

216

10.5%

Q3 ’13

119

5.7%

Q2 ’13

151

7.1%

Q1 ’13

123

5.7%

Other operating expenses% of Revenues1

40

Q3 ’14

793

40.1%

Q2 ’14

7872

39.4%

Q1 ’14

811

40.6%

Q4 ’13

797

38.7%

Q3 ’13

782

37.6%

Q2 ’13

812

38.0%

Q1 ’13

796

36.7%

Work contracted out% of Revenues1

1 As % of revenue excluding other income2 Restated due to better insights

Operating expenses - analysis Depreciation & Amortization

Amortization1

(Continuing operations)

Depreciation1

(Continuing operations)

€ m

€ m

1 Including impairments, if any2 As % of revenue excluding other income

Y-on-Y decrease• Lower depreciation due to phasing out of handset

lease at all brands at Consumer Mobile

Q-on-Q decrease• Lower depreciation due to phasing out of handset

lease at all brands at Consumer Mobile• Lower depreciation of hardware at NetCo due to

reclassification in Q2 2014Q3 ’14

294

14.9%

Q2 ’14

319

16.0%

Q1 ’14Q4 ’13

328

15.9%

Q3 ’13

319

15.3%

Q2 ’13

312

14.6%

Q1 ’13

299

13.8%

306

15.3%

Q1 ’14

139

7.0%

Q4 ’13

155

7.5%

Q3 ’13

143

6.9%

Q2 ’13

155

7.3%

Q1 ’13

146

6.7%

143

7.2%

Q3 ’14

146

7.4%

Q2 ’14

Depreciation% of Revenues2

Amortization% of Revenues2

Y-on-Y increase• Higher amortization of software

Q-on-Q increase• Higher amortization of software

41

The Netherlands - operating expenses

Intercompany

Other operating expenses

Own work capitalized

Work contracted out and other expenses

Cost of materials (other)

Employee benefits

• Operating expenses (excl. D&A, restr. costs and impact phasing out handset lease) down 2.5% y-on-y

• Employee benefit costs increased 1.2% y-on-y due to release of provisions for several incentive schemes in Q3 ’13

• Cost of materials (excl. impact phasing out handset lease) decreased by 3.7% y-on-y

• Work contracted out increased 4.1% y-on-y− Higher content costs at Consumer Residential− Higher FttH activation costs at NetCoPartly offset by− Lower IT cost due to Simplification program at NetCo− Less external personnel

• Simplification program supporting further opex reduction in coming years

Breakdown operating expenses(excl. D&A and restructuring costs)€ m

42

136 155

-16-20-16

6472

4812

1702

269

Q3 ’13

949

32

469

255

+0.1% / -2.5%1

Q3 ’14

950

23 42

488

258

Q2 ’14

989

25

1 Excluding impact of phasing out handset lease2 Restated due to better insights

Dutch wireless disclosure

Q3 ’14 Q3 ’13 %Service revenues (€ m)− Consumer retail− Business1

− Other2

53328820540

58731222946

-9.2%-7.7%-10%-13%

SAC/SRC per subscriber (€)− Consumer retail3− Business

190266

172244

10%9.0%

1 Includes partial allocation of multi play revenues to mobile service revenues2 Includes amongst others Consumer Mobile wholesale and visitor roaming revenues at NetCo3 Including handset subsidies, commissions, SIM costs and capitalization of handsets corrected for residual value

43

Tax

P&L Cash flowFiscal units (€ m) Q3 ’14 Q3 ’13 Q3 ’14 Q3 ’13The Netherlands -10 -12 -141 -812

GermanyBelgiumOther

171

-3

-102-

-2

-2--

1-

-1

Total reported tax (incl. discontinued operations) 5 -116 -16 -81Of which discontinued operations 16 -101 -2 1

Reported tax continuing operations -11 -15 -14 -82Effective tax rate continuing operations -17.7% 14.7%

• In Q3 ’14, the effective tax rate for continuing operations is influenced by a changing mix of taxable results in the various countries and the increase in the option liability for Reggefiber

• Q3 ’14 cash outflow in The Netherlands relates to settlement of tax payables of previous years, which is expected to occur in the coming quarters as well

• For the 2014-2016 period, the effective tax rate, excluding one-off effects3, is expected to be ~20%• Deferred tax asset resulting from E-Plus sale increased by € 106m to € 1.2bn, limited tax cash out in The Netherlands

in the coming years

1 Relating to tax payments for period prior to 20142 Including tax recapture E-Plus3 Excluding effects of, amongst others, settlements with tax authorities, impairments, revaluations

44

Contents

1 KPN ADR program


3 Debt overview




45

46

Debt summary

€ bn Q3 ’14 Q2 ’14 %Nominal debt 12.84 12.80 0.03%EurobondsGlobal bondsHybrid bondsFinancial leases and other loans

9.430.762.030.62

9.430.762.030.58

---

6.9%

Adjustments to nominal debt -1.02 -1.02 -Equity credit hybrid bonds -1.01 -1.01 -Cash collateral on derivatives -0.01 -0.01 -

Gross debt1 11.82 11.78 0.3%Of which short-term 1.34 1.31 2.3%

. .

Net cash & cash equivalents 1.50 1.33 13%Cash & cash equivalents 1.50 1.53 -2.0%Bank overdraft - -0.20 -100%

Net debt2 10.32 10.45 -1.2%

1 Gross debt defined as the nominal value of interest bearing financial liabilities, excluding derivatives and related collateral, representing the net repayment obligations in Euro, taking into account 50% of the nominal value of the hybrid capital instruments

2 Net debt defined as gross debt less net cash and short-term investments

100%Fixed

47

1 Based on the nominal value of interest bearing liabilities after swap to EUR, including EUR 1.1bn hybrid bond, GBP 400m hybrid bond and USD 600m hybrid bond

2 Foreign currency amounts hedged into EUR3 Excludes bank overdrafts

3

€ bn Fixed vs. floating interest

Debt portfolioBreakdown of € 12.8bn nominal debt1 including hybrid bonds

0.8

0.1

0.71.0

0.5

’32’30’29’26’25’21

1.3

’20

1.5

’19

1.0

’18

1.1

’17

1.0

’16

1.3

’15

1.0

’22

0.5

’23 ’24

0.8

USDEUR hybrid (1st call)GBPGBP hybrid (1st call)USD hybrid (1st call)

Breakdown nominal debt1 (total € 12.8bn)

Eurobonds73%

Global bonds6%

Bond redemption profile

Hybrid bonds16%

Other5% 70%20%

10%

EUR USD GBP22

Nominal debt by currency

Treatment of hybrid bonds

KPN & Credit rating agencies

• Each tranche of the hybrid bonds is recognized as 50% equity and 50% debt by the rating agencies

• Definition of KPN net debt includes: ‘[…], taking into account 50% of the nominal value of any hybrid capital instrument’− Hybrid bonds are part of KPN’s bond portfolio− Independent of IFRS classification− In line with treatment by credit rating agencies

IFRS

• EUR tranche is a perpetual, accounted for as equity− Coupon payments treated as equity distribution, hence

not expensed through P&L, not included in FCF, but in financing cash flow1,2

• GBP and USD tranche have 60 years specified maturity, accounted for as financial liability− Coupon payments treated as regular bond coupon, hence

expensed through P&L, included in FCF

48

Tranche Nominal(swapped to EUR) KPN net debt Maturity Rates

(swapped)1IFRS

principal IFRS

coupon

EUR 1.1bn 6.125% € 1,100m € 550m Perpetual(non-call 5.5) 6.125% Equity Financing cash flow2

(not incl. in FCF)

GBP 0.4bn 6.875% € 460m € 230m 60 years(non-call 7) 6.777% Liability Interest paid

(incl. in FCF)

USD 0.6bn 7.000% € 465m € 233m 60 years(non-call 10) 6.344% Liability Interest paid

(incl. in FCF)

Total € 2,025m € 1,013m

1 EUR tranche had short first coupon payment (0.5 years was payable in September 2013), annual coupon payments in September thereafter; USD tranche has semi-annual coupon payments (March / September); GBP tranche has annual coupon payments in March

2 Cash flow item ‘Paid coupon perpetual hybrid bonds’

Contents

1 KPN ADR program


3 Debt overview




49

RegulationMTA rates across the Group

NL

• ACM decision to base MTA rates on ‘pure BULRIC’ of € 1.019 cent per minute as of 1 September 2013 is under appeal (Court announced prejudicial questions to European Court of Justice)

• Dutch Court suspended ACM decision and mandated interim rates based on ‘plus BULRIC’ of € 1.861 cent per minute

BE

• On 24 September 2014, the Court of Appeal of Brussels annulled BIPT decision of 29 June 2010 for procedural reasons, but decided that the effects of the Decision will be maintained until 30 June 2015

• BIPT new tariffs setting (mid 2015 and onwards) in progress

€ ct / min Until 7 July ’10 7 July ’10 Sep ’10 Jan ’11 Sep ’11 Sep ’12 Sep ’13

MTA rate 7.00 5.60 5.60 4.20 2.70 2.40 1.861

€ ct / min Until Aug ’10 Aug ’10 Jan ’11 Jan ’12 Jan ’13

MTA rate 11.43 5.68 4.76 2.921 1.081

50

1 After indexation the MTA rates applicable as of January 2012 and January 2013 are calculated at € ct / min 3.11 and € ct / min 1.18 respectively

1 List prices excluding PVC/VLAN tariffs 2 List prices including PVC/VLAN tariffs

Category Monthly tariffLine sharing (LLU) € 0.11 / line

Fully unbundled (LLU) € 7.79 / line

MDF colocation € 946.98 footprint / year

Wholesale Broadband Access1 € 5.32 / line shared€ 13.00 / line non-shared

Category Monthly tariffLine sharing (SLU) € 7.03 / line

Fully unbundled (SLU) € 7.03 / line

SDF colocation € 5.64 / per unitOne-off € 516.23 / per unit

Wholesale Broadband Access1 € 5.32 / line shared€ 13.00 / line non-shared

Category Monthly tariffFully unbundled (ODF FttH) € 14.23 - € 18.09 / line

ODF FttH colocation ≤ € 548 / month / per Area PopOne-off ≤ € 3,289 / per Area Pop

ODF FttH Backhaul ≤ € 657 / month

Wholesale Broadband Access FttH2 € 26.38 - € 45.00 non-shared

Unbundling in copper network

1,350 local exchanges

Unbundling in network FttC

NodeKPN / Telco

~28,000 Street cabinets

MDF

Unbundling in network FttH

NodeKPN / TelcoCity PoP

MDFcolocationSDF Node

KPN / Telco

SDFcolocation

ODF

Regulated Not regulatedWholesale Broadband Access (not regulated)

Wholesale Broadband Access Consumer market (not regulated)

51

Wholesale Broadband Access Consumer market (not regulated)

Unbundling tariffs

~28,000 Street cabinets

~3,500

Spectrum in The Netherlands

Current status

900MHzPaired

1.8GHzPaired

2.1GHzPaired

800MHzPaired

1.9GHzUnpaired

Total

2.6GHzPaired

2.6GHzUnpaired

2*30

2*35

2*70

1*35

2*59.4

2*65

1*60

VOD KPN T-Mob

2*10 2*10 2*15

KPN VOD T-Mob

2*20 2*20 2*30

T-Mob KPN VOD T-Mob

10 5 5.4 14.6

VOD Ziggo4 T-Mob KPN Tele2

2*10 2*20 2*5 2*10 2*20

T-Mob KPN Tele2

25 30 5

KPN VOD T-Mob Tele2 Ziggo4

174.6MHz 144.6MHz 189.6MHz 65MHz 40MHz614MHz

Tele2 VOD KPN

2*10 2*10 2*10

VOD KPN T-Mob KPN VOD T-Mob

2*14.6 2*14.8 2*10 2*5 2*5 2*10

52

Spectrum in Belgium

Current status

900MHz1

Paired

1.8GHz2

Paired

2.1GHzUnpaired

800MHzPaired

BASE Belgacom Mobistar

2*10 2*10 2*10


2*10 2*12 2*12


2*23.4 2*23.4 2*23.4

B M B

5 5 5

2.1GHzPaired

Total

2.6GHzPaired

2.6GHzUnpaired

2*30

2*34

Belgacom BASE Mobistar

2*15 2*14.8 2*14.8

BUCD

45

2*63.6

2*44.6

1*15

2*55

1*45

Belgacom BASE Mobistar BUCD

160.6MHz 148.6MHz 160.2MHz 45MHz

Belgacom BASE Mobistar

2*20 2*15 2*20

514.4MHz

53

1 As of 27 November 2015, the 900MHz spectrum will be divided as follows: BASE Company (2*10.2), Mobistar (2*11.8), Belgacom (2*12.2) 2 As per publication of a BIPT council decision on division of the 1,800MHz spectrum on 23 July 2014, BASE Company, Belgacom and Mobistar have

2*23.4MHz. As of April 2015 (exact timing to be confirmed by BIPT), BASE Company, Belgacom and Mobistar will each have 2*24.8MHz available in the 1800MHz band

Contents

1 KPN ADR program


3 Debt overview




54

Infrastructure Deploying mix of technologies going forward

Fiber Copper

Vectored VDSL from SC1

up to 120 Mbps DSup to 30 Mbps USIPTV, multi-room HDTV

SC

VDSL from CO1

(VDSL-CO)

up to 40 Mbps DS1

up to 10 Mbps US1

IPTV, multi-room HDTV

FttH

up to 500 Mbps DS & USIPTV, multi-room HDTV

Wireless

up to 100 Mbps DSup to 40 Mbps US(HSPA / LTE)DVB-T (Digitenne)

VDSL pair bondingCO (VDSL-CO)


CO

ODF1

1 Abbreviations: CO: Central Office; SC: Street Cabinet; ODF: Optical Distribution Frame; DS: Download Speed; US: Upload Speed

55

CO CO

SC

CO

Pair bonded vectored VDSL from SC


56

Option I1 Option II3 Option III

Ownership stake• Additional 10%• 51% ownership

• Additional 9%• 60% ownership

• Remaining 40%• 100% ownership

Option type Call and Put option Call and Put option Put option

Exercise price € 99m € 161m ‘Fair value’or € 647m

Option trigger• 1m Homes

Connected or• 1 January 2013

• 1.5m Homes Connected or

• 1 January 2014

• Put vests at settlement of option II

Consolidation No2 Yes Yes

Option structure

1 On 8 November 2012 KPN acquired an additional 10% of the shares in Reggefiber, increasing its share to 51%, for an amount of € 99m2 KPN does not obtain management control at 51% ownership, therefore no consolidation triggered3 Option II exercised on 2 January 2014; Dutch Competition Authority (ACM) approval is required to increase KPN ownership from 51% to 60% after

which Reggefiber will be consolidated

Fair value

Fair value or € 647m

Fair value

t+5y – t+7y

t+3.5y – t+5y

t0 – t+3.5y

Exercise price option III

(in € m)

Revenue 119

Opex (excl. D&A) 36

Capex 359

Shareholder loans 526

Net bank debt 602

Indicative, simplified financials based on Dutch GAAP;Balance Sheet items per 31 December 2013

Reggefiber financials FY 2013

Organizational chart

51% 49%

t0 t+1y t+2y t+3y t+4y t+5y t+6y t+7y

t0 = exercise option II

Roadmap to Reggefiber consolidation

Contents

1 KPN ADR program


3 Debt overview




57

Telefónica Deutschland stakeAccounting treatment

Balance sheet

• Stake will be included as financial asset1

• Fair value of KPN’s stake will be based on Telefónica Deutschland’s share price and adjusted quarterly

o Fair value movements will be recorded in other comprehensive incomeo Significant or prolonged value decreases will be booked as an impairment through the

P&L within net finance costs

P&L

• Dividends received will be reported as finance income within net finance costs• Upon sale of (part of) the stake, all related capital gains or losses are recognized through the

P&L as other income• Significant or prolonged value decreases will be booked as an impairment through the P&L

within net finance costs

Cash flow • Dividends received will be part of operating cash flow and free cash flow as dividends received

Tax• Dividends received and/or capital gains realized (proceeds above tax book value) on KPN’s

stake will be subject to Dutch corporate income tax• Deferred tax asset can be utilized to offset income related to KPN’s stake

1 Defined under IFRS as available for sale financial asset

58

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